Zimbabwe: Waning Political Talks Prospects Drive Equities

Source from:  Financial Gazette (Harare) 31 August 2008 09/09/2008

The quest by investors to hedge their financial assets against the wealth destruction effects of inflation saw the equities market continue posting positive growth rates during the week ended yesterday. For instance, on Monday, the Industrial Index rose by 122.24 percent, the highest movement in a single trading day. The last highest single-day movement of 122.18 percent was achieved on June 30, the first trading after the presidential election run-off on June 27. This latest movement comes as the search for a political settlement is proving to be elusive and hopes for an economic turnaround fading. As a result, analysts are predicting a gloomy inflation outlook as fiscal and quasi-fiscal activities are expected to continue unabated. The hyperinflation environment, coupled with negative real investment rates, leaves non-interest earning assets such as equities the only available viable investment option. The equities market has performed well market during the year-to-date with inflation-adjusted (real) returns that are in line with movements in the US dollar. The money market is yielding negative real returns due to financial repression and hyperinflation while the property market, though viable, cannot be readily exploited by the average investors due to the high expenditure outlays involved. There being no alternative investment market and given this environment of serious hyperinflationary environment, investors are rushing to the equities market in a bid to hedge their financial assets against inflation. The hyper-inflationary environment is also mirrored by the now frequent adjustment of daily withdrawal limits. Reflecting the above developments, the Industrial Index gained by 392 percent to close the week under review at 192,439.49 points while the Mining Index gained by 330 percent to close at 205,950.26 points. Movers were led by BAT, up 1 400 percent at Z$1,500, followed by Steelnet, up 1,300 percent at Z$7 and Chemco, up 977 percent at Z$700. Turnall and G/Belting capped the top five movers rising 900 percent and 823 percent to close at Z$10 and Z$6, respectively. There were no shakers during the week. This latest rally took the year to date return to 98,505,971 percent for the Industrial Index and 85,282,336 percent for the Mining Index. Meanwhile, the money market continued to experience excess liquidity conditions to the high volumes of fiscal and quasi-fiscal expenditures that continued to flow into the market. The public expenditures meant to meet, among other things, high social welfare services and programs like BACOSSI, that is meant to relieve the strain of the obtaining harsh economic conditions especially among the vulnerable groups in the rural and high density urban areas through provision of basic goods in the "People's Shops", has received enormous funding from the Government, thus heightening the liquidity levels on the money market. Civil servant salaries that began flowing onto the market, purchases of gold and tobacco, foreign currency purchases and a host of other government-funded support programmes also contributed heavily to long market conditions. That has rendered Treasury bills which used to provide the traditional buffer for the money market liquidity irrelevant considering its unattractive rate of 340 percent per annum. These public expenditure developments saw the week opening last Thursday with a surplus position of Z$140 million, closing the same day with an actual position of Z$1.7 billion. Last Friday the market closed with a surplus of Z$1.6 billion while Monday closed Z$1.7 billion up despite the day experiencing Statutory Reserve payments. Excess liquidity conditions continued on Tuesday, which closed with surplus position of Z$801 million. The market was forecast to end the week yesterday with a surplus of Z$4 billion. Investment rates remained subdued with rates trading below 100 percent for the 7-14 day area while the 30-90 day placements were being indicated at rates below 300 percent. The one-year Treasury bill rate was unchanged at 340 percent. A total of Z$770.40 million was allotted into the said tenders during the week under review. Enditem